First Home Super Saver Scheme - Withdrawals can be made on or after 1 July 2018

The legislation to implement this scheme was enacted in December 2017 and will apply from 1 July 2018.  In broad terms, this scheme permits individuals to withdraw (up to certain limits) the amount of their voluntary superannuation contributions plus associated earnings for the purpose of purchasing their first home. 

The important points about this measure are:

Only voluntary contributions made since 1 July 2017 can be subject to release under the scheme.  For this purpose voluntary contributions are contributions (whether concessional or non-concessional made for the individual) other than “SG contributions – the compulsory 9.5% contributions made by an employer” or contributions required to be made by reason of an industrial award.  Only voluntary contributions made since 1 July 2017 are relevant.

Also, contributions made in respect of a defined benefit interest or contributions made to constitutionally protected funds, are not voluntary contributions for the purposes of the First Home Super Saver Scheme. 

There is a maximum amount of voluntary contributions which can be treated as being potentially eligible for release.  The maximum amount is 100% of your voluntary non-concessional contributions and 85% of your voluntary concessional contributions.   

There is also an upper limit on the amount of voluntary contributions which can be counted as being potentially eligible for release in any financial year.  Only the first $15,000 of voluntary contributions made in each financial year are counted as being potentially eligible.

Example:

The following contributions are made for Jody in respect of 2017/18 and 2018/19 and 2019/20.

The employer SG contributions (2nd column) do not qualify as voluntary contributions.  Consequently they do affect the calculation of the accrued release amount as at 1 July 2020.

Employer Additional contributions (3rd column) qualify as voluntary contributions.  However, only 85% of the contributions are treated as being potentially subject to release.  This arises as these contributions are subject to 15% tax at the fund level.

As Jody has not claimed a tax deduction for any of her personal contributions (4th column) 100% of the value of the contributions are treated as being potentially subject to release.

In respect of 2018/19, the total amount of contributions potentially subject to release is $24,000.  As the maximum amount of potentially releasable contributions per financial year is capped at $15,000, only the first $15,000 is counted.  The excess of $7,000 is ignored: it can neither be carried forward nor carried back.

In respect of 2018/19 the date order in which the contributions are received is important as it affects the taxation treatment of the released amount in the hands of the individual.  The general rule is that each voluntary contribution is counted in the date order in which it is received and if both types of contributions are received on the same day, then the non-concessional contributions are counted first.  Equally for 2019/20, the date in which the concessional and non-concessional contributions are received is also important. 

The importance of the order in which contributions are counted for First Home Super Saver Scheme purposes relates to the taxation composition of the released amount.  The released amount will consist of concessional component, non-concessional component and the associated earnings component.  The concessional and associated earnings component will form the assessable portion of the release amount while the non-concessional component will form the non-assessable portion.

Assuming Jody elects to release her maximum amount, the assessable component will be included in her assessable income and she will be entitled to a 30% tax offset.  The non-assessable portion is not subject.

Associated Earnings - the amount of associated earnings will be determined by the ATO by applying a statutory formula.  The actual earnings of the fund are irrelevant.  Consequently the associated earnings could be greater or lesser than the actual earnings.

Claiming the release - the individual will have to initiate the release process by completing and submitting to the ATO the relevant claim form for a determination.  The ATO will determine the maximum release amount and the amount of associated earnings and give this information to the individual.  The individual can then request a release authority from the ATO.  

The request for the authority must specify the amount to be released (which cannot exceed the ATO determination of the maximum releaseable amount) and the particular superannuation fund which is to pay the released amount. 

The individual then provides to the superannuation fund the release authority and the superannuation fund is then permitted to pay to the individual the amount specified in the authority.

The individual must be at least 18 years of age, not previously have requested a release under the First Home Super Saver Scheme (it is a once only arrangement) and must never have held a freehold interest in land in Australia (or held similar ownership interests in land in Australia).  

The exclusion from claiming a release under the First Home Super Saver Scheme of individuals who currently hold or previously held land in Australia means that the claim for the release must be made before you enter into a contract for an existing dwelling or a “house and land” package.  The release amount cannot be used to finance the construction of a dwelling on land the individual already owns or to pay for the kitting out costs of an already acquired residence.

Consequences of the release - the amount of concessional contributions released and the associated earnings will be included in the individual’s assessable income.  The individual will be entitled to a tax offset of 30%. To the extent the released amount includes non-concessional contributions, they will not be included in assessable income.

Application of the released amount - the released amount must be used for its intended purpose.  If it is not used for the intended purpose – then the individual will be taxed – this is a special tax called the First Home Saver Tax and is at the rate of 20% on the assessable portion of the released amount.  Alternatively, to avoid payment of this special tax, the individual can return the amount to the superannuation system.

When must the released amount be used to acquire a dwelling? - in general the released amount must be used within 12 months.

What happens if the released amount is not used within the required time? - in general the unused amount can be returned to the superannuation system but only as a non-concessional contribution.  The individual will be required to notify the ATO of the returned amount.

Alternatively, the individual can retain the amount and pay tax at the rate of 20% on the assessable portion of the released amount (ie the released amount other than portion related to non-concessional contributions).

The SUPERCentral Governing Rules will be updated before 1 July 2018 (possibly in early May) so that the trustee can pay first home super saver withdrawals and also to accept returned amounts.